ADMIS News
COCOA
September cocoa traded to a new contract high yesterday and another one overnight. Supply continues to be the main issue, but the market also received some bullish demand news yesterday with lower CPI readings in Germany and the US. However, the large net long position held by the funds leaves the market vulnerable to heavy selling if support levels are taken out. Heavy rainfall over West African growing areas over the past few weeks has disrupted the harvesting, drying, and transporting of midcrop cocoa beans to the region’s port facilities and has raised concerns about midcrop production. Ivory Coast and Ghana production are both expected to be higher than last year, but global grindings are expected be higher as well, and this is expected to cause second straight global production deficit. In addition, the arrival of El Nino has added a new threat to global production next season, as it could bring hot and dry conditions to west Africa.
COFFEE
Coffee’s three-session pullback has taken the market from a seven-week high back to its June lows, and unless it can find fresh bullish supply news, we could see the pullback extend. The Brazilian currency reached a new 1-year high yesterday, which may have kept coffee from making further losses. Brazil’s Arabica harvest has picked up after an earlier delay, and that has put the market on the defensive. The Brazilian trade group Cecafe said Brazil exported 2.1 million bags of green coffee in May, 20.4% below last year. This was due to harvest delays. The coffee harvest as of the end of May represented about 20% of the forecast for the entire season versus a five-year average of 30% for that time frame. The Brazilian government statistics office has forecast their 2023/24 coffee production at 55.4 million bags, which would be a 5.9% increase over last season. ICE exchange coffee stocks fell by 2,243 bags Tuesday to reach a new 7 1/2 month low.
COTTON
US cotton crop conditions were down slightly this week but not enough to set off alarm bells. Conditions could worsen over the next week, given the hot and dry conditions in the forecast for west Texas and the Panhandle, but it could take an extended period of bad weather to move the cotton market out of its 6-month consolidation pattern. Rainfall in West Texas this spring has improved soil conditions substantially. On April 4, 46% of the US cotton area was considered under drought, and that number dropped to 36% by May 23 and 19% by June 6. The upcoming week shows little chance of improvement, with forecasts for above normal temperatures and little or no precipitation in the region. The US May CPI reading showed the lowest year-over-year increase since March 2021. Strong economic data is positive for cotton consumption. The FOMC meeting results come out after today’s close and will include projections for US inflation and economic growth. A pause in rate increases could pressure the dollar and make US exports more attractive.
SUGAR
The sugar market has been unable to overcome bearish supply developments in Brazil, and we look for it to remain on the defensive until there is a significant shift in this season’s production outlook. The Brazilian sugar and ethanol industry group UNICA reported Brazil’s sugar production in the second half of May at 2.9 million tonnes, up 25.2% from the same period a year ago. Crushing rose 5.48% from the same period last year to 46.19 million tonnes. This beat analysts’ expectations. Higher crude and gasoline prices overnight could lend some support to sugar today. The Brazilian currency reached a new 1-year high. Citi raised its price forecast for this year, citing potential problems in Asia due to El Nino.
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